These two stocks have been the market favorites for the last few years, and have generated returns far in excess of the market. We decided to analyze why Eicher Motors may have outperformed Page Industries, when many similarities exist between the two companies.

We are not commenting on the future financial performance or target price of the two companies.

Background

Eicher Motors Ltd. and Page Industries Ltd. operate in totally diverse industries. Eicher Motors Ltd. operates in the automobile sector and is a leading manufacturer of commercial vehicles (trucks and buses), motorcycles and personal utility vehicles. Page Industries Ltd. is an apparel manufacturer and the India master franchisee of Jockey International of the U.S.

In other words, while Eicher Motors Ltd. is primarily into B2B, Page Industries Ltd. is only into B2C.

We review how the businesses of the two have evolved over the last few years.

Eicher Motors Ltd.: Royal Enfield – the Game Changer

We note that the share of Royal Enfield motorcycles in the company’s sales grew aggressively over the last 5 years. The motorcycle business has proven to be the game-changer for the company’s financial performance and valuations. Manufacturing capacity has been raised 9x since 2010.

Royal Enfield Sales Data

2011

2012

2013

2014

2015

Gross Sales (incl. excise) RsCr

662.85

1,073.65

1,763.06

3,074.41

N.A.

Sales Volume

74,626

113,432

178,121

302,592

452,759

Volume Growth y-o-y

41.9%

52.0%

57.0%

69.9%

49.6%

Average Sales Realisation Rs

88,823

94,651

98,981

101,602

N.A.

% of Company Sales

10.8%

15.3%

23.7%

32.9%

N.A.

Company Gross Sales RsCr

6,130.29

6,995.04

7,433.29

9,351.74

N.A.

Royal Enfield sales volumes grew 7.6x, at 53.8% CAGR, during FY10-15. Royal Enfield enjoyed industry best EBIT margin of 25.2% in CY15. The manufacturing capacity is to be ramped up from 0.6mn units p.a., to 0.62mn p.a. during 2016, and further to 0.9mn by 2018. 1 new product is to be launched by end-2017.

We expect the share of Royal Enfield motorcycles to move up, within the company’s consolidated sales, going ahead.

Page Industries: Riding the Consumerism Boom, on the back of Rising Share of Organized Sector

Page Industries has also been ramping capacities up over the last few years, and its Jockey brand has become a force to reckon with, in the innerwear market. It is riding on the consumption boom and fast growing market for ladies’ innerwear in India. The rising share of unorganized sector in the innerwear market is a key positive for Page Industries, which is already a leading player in the segment.

What Do These Two Diverse Companies Have in Common?

We note that there are a few similarities between the two companies, such as:

Strong brands, backed by wide distribution network

Strong management teams

Track record of aggressive revenue growth

Consistently growing post-tax profit

Strong RoE

High dividend payout

Strong balance sheets, with near-zero leverage

No bonus issues or stock splits

We carried out a Comparison between the two and tabulated the same along a few criteria as contained later in this article.

Conclusion: Royal Enfield has been the Game Changer for Eicher Motors Ltd.

Based on our analysis as contained in this article, we conclude that investors seem to have clearly favored Eicher Motors Ltd. over Page Industries Ltd, in terms of stock price returns.

The one single reason we can think of which led to outperformance of Eicher Motors, is the 7.6x sales volume growth in Royal Enfield motorcycles since 2010, particularly after the launch of the Royal Enfield ‘Classic’.

In contrast, the innerwear segment in which Page Industries operates, remains competitive, with most leading global players already present in the Indian innerwear market.

Eicher Motors’s outperformance vis-à-vis Page Industries is significant in the backdrop of higher liquidity (trading volumes) enjoyed by the former, that too, in spite of slightly lower free-float and institutional ownership, than the latter. However, a much larger number of FIIs and MFs have invested in Eicher Motors than in Page Industries. Retail ownership is also higher in case of Eicher Motors Ltd.

The Road Ahead: Businesses Remain Robust; Investors Could Benefit from a Stock Split

Eicher Motors will likely continue to ride on the success of Royal Enfield motorcycles, by raising the manufacturing capacities. While the motorcycle market in India shrunk in 2015, the share of the premium segment, in which Royal Enfield has a strong presence, is in fact growing. This bodes well for the company.

Page Industries too will continue to grow by increasing manufacturing capacities. It entered the niche swimwear segment by tying up with the Speedo brand a few years ago.

As stated above, neither company has made any issue of bonus shares or split the stock. Both stocks have become “high-priced” stocks since the last 4-5 years, materially hampering liquidity. We believe investors could benefit, if the companies were to split the stock into face value of Rs5 or Rs2 per share.

Revenue and Profit Track Record

(Figures in RsCr unless stated otherwise)

Eicher Motors

Page Industries

Sales CY15 / FY15

11,924

1,543

Sales FY16 YTD

1,348

5-year Sales CAGR

22.1%

35.4%

EBITDA CY15 / FY15

1,807

319

EBITDA FY16 YTD

286

5-year EBITDA CAGR

38.1%

37.9%

PAT CY15 / FY15

943

196

PAT FY16 YTD

175

5-year PAT CAGR

37.9%

37.7%

3-year Average EBITDA margin

12.8%

20.8%

Effective Average Tax Rate (last 3 years)

27.1%

33.1%

RoE CY15 / FY15

27.3%

42.9%

Dividend Payout ratio CY14 / FY15

26.4%

48.9%

Note: Eicher Motors has been in existence much before Page Industries. While Eicher Motors was incorporated in 1959, Page Industries was incorporated in 1994. Besides, the nature of the business partly explains the higher revenue size of Eicher Motors. The higher revenue CAGR of Page Industries can be attributed to smaller base. In spite of lower revenue CAGR, Eicher Motors’s EBITDA and PAT CAGR is almost the same as of Page Industries.

Balance Sheet Numbers

(Figures in RsCr unless stated otherwise)

Eicher Motors

Page Industries

Paid-up Equity Share Capital

27.15

11.15

Reserves

3,429

445

Gross Block

3,255

214

Debt

0

30.85

Cash

569

6.79

EV

50,752

11,044

Debt-Equity ratio (x)

0.00

0.07

Note: Eicher Motors is in the automobile industry and has an asset-heavy business model. Its gross block (consolidated financials) is significantly higher than that of Page Industries. However, so is its market capitalization.

Note: These valuations do not constitute advice to buy or sell the stocks discussed.

Stock Ownership Pattern

Eicher Motors

Page Industries

Promoter Stake

54.9%

51.0%

Free Float

45.1%

49.0%

FII Holding

26.6%

34.3%

DII Holding

4.9%

5.4%

Retail Holding

13.6%

9.3%

No. of FII Investors

483

122

No. of MF Investors

200

40

No. of Retail Investors

66,053

27,475

Note: Eicher Motors has a much higher absolute number free float shares, than Page Industries. It also has much higher number of FII, MF and retail investors, vis-à-vis Page Industries.

Trading Volumes and Stock Returns

Eicher Motors

Page Industries

Avg. Daily Volumes (NSE) Last 12 mths

78,800

12,100

Avg. Daily Turnover (NSE) Last 12 mths

141.3

16.5

Avg. Deliverable Volumes (NSE) Last 12 mths

49%

54%

Daily Volume as % of Free Float

0.6%

0.2%

Daily Volume as % of Retail Holdings

2.1%

1.2%

3-year Returns

582%

196%

Returns since Page Industries Listing

6184%

3535%

Beta

0.35

0.45

Note: Higher trading volumes for Eicher Motors can be attributed to higher number of free float shares and retail investors. Eicher Motors’s trading volumes are higher in relation to its free float and retails holdings too. Both stocks enjoy comfortably high deliverable volumes, highlighting high share of delivery-based buying.

We computed returns for both stocks since the listing of Page Industries on March 16, 2007. Eicher Motors has given far superior returns, not just vis-à-vis NSE Nifty 50, but vis-à-vis Page Industries Ltd. too, over the last 3 years, and since listing of Page industries.

Notes

Consolidated figures have been considered for Eicher Motors Ltd.

Eicher Motors used to follow the calendar year as its financial year. However, it will revert to the financial year and hence its current financial year will have 15 months, ending on March 31, 2016. The company’s FY15 figures in above tables should be considered as CY15, and so on.

Balance sheet figures are as at December 31, 2015 for Eicher Motors Ltd. and as at September 30, 2015 for Page Industries Ltd.

Beta computed for the period March 16, 2007, to February 29, 2016. Beta is relative to NSE Nifty 50 for Eicher Motors, and to Nifty Midcap 100 for Page Industries.

Stock ownership patterns as at December 31, 2015.

Relative Stock Price Performance over Last 3 Years

Eicher Motors has squarely beaten not just the Nifty 50 index, but also Page Industries over the last 3 years.

Eicher Motors and Page Inds v Nifty

Disclaimer

This blog article is for educational purpose only, and not meant to be investment advice, or a recommendation or solicitation to buy, or sell, the securities named herein. It is based primarily on information publicly available, including company websites, published financial results, annual reports, analyst presentations, media reports, etc.

The author does not claim accuracy of his opinions and estimates as contained in this article. While the author has taken reasonable care to avoid errors or misstatements of facts, he does not accept responsibility for errors, if any, in this article.

In any case, the author will not be liable for losses, if any, arising from the use of this article.

Author Certification

Opinions and views, if any, contained in this article reflect the personal opinions of the author, as of the article date, unless stated otherwise. However, the author may reviewed these periodically and therefore, they may change materially, going forward.

Commercial relationship with companies covered (as of the article date): No

Stock ownership in companies covered (as of the article date) : No

Name of Author : Nitin A. Khandkar

Registered with SEBI as Research Analyst : No

Additional Disclosures:

I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.

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9 Comments

Hi, this article is interesting. I have seen a lot of articles on both Eicher Motor and Page Industries, but this is probably 1st time some one is comparing these two companies. Great analysis! Looking forward to more such stuff.

Both Eicher Motors and Page Industries appear to be interesting stories from India. However, they appear to be somewhat pricey. Especially since market cap of Eicher Motors is almost same as of Harley Davidson, a globally recognized brand. Maybe Eicher will grow at a faster pace.

Interesting analysis, but a couple of questions. Would a consumer stock (Page Industries) continue to enjoy such high multiples? And after all, Eicher Motors is focused on India, whereas Harley is a global brand. Should Eicher have market cap equivalent to Harley?